Wednesday, June 03, 2009

The Economics of Opening a Bar in New York

This was in New York Magazine a couple of weeks ago and I found it interesting:


So you want to open a bar, huh? A profitable bar? We asked four experts to run the numbers on a make- believe, 1,000-square-foot neighborhood pub in the East Village.

Start-Up Costs
Rent for six months while waiting on a liquor license: $49,800 (assuming $8,300 a month)
Liquor license and fees: $9,000
Equipment, construction, and demolition: $60,000
Signage: $1,000
Décor and glassware: $21,000
Training for six employees: $858
Initial liquor order: $6,000 (45 percent on beer, 40 percent on liquor, 5 percent on wine, 10 percent on mixers)
Sound system: $1,000
Emergency funds: $50,000
Misc.: $2,000
TOTAL . . . . . . . $200,658

Ongoing Monthly Costs
Rent: $8,300
Booze: $10,000
Insurance: $500
Misc.: $1,900
Staff pay: $1,720 (assuming 100 hours a week at $4.30 an hour)
Utilities: $1,320
Taxes and fees: $1,000
TOTAL . . . . . . . . $24,740

The Markups
Draft beer: $3.59 a pint
Bottled beer: $3.85 a bottle
Well liquor: $4.65 a pour
Top-shelf liquor: $3.35 a pour
Wine: $3.48 a glass

Break-Even Point
Amount you’d have to gross in 18 months before you start turning a profit: $645,978 (monthly expenses of $24,740 for 18 months, or $445,320, plus start-up costs of $200,658)
Number of customers required per night to reach $645,978 in 18 months (assuming $5 per average drink and 1.5 drinks per person): 160

I was surprised at that very last assumption, that the average drink is only $5 and the average customer only has 1.5 drinks. It seems like drinks tend to be more expensive than that, and I would have thought more customers tend to have multiple drinks... but maybe I'm just a biased high-end lush! Either way, opening a bar is definitely one entrepreneurial effort I will never undertake!


S said...

Wow. This is an idea that I bounce of my friends all the time as something that I always wanted to do. The biggest impediment people always discuss is the liquor liscence? How difficult is obtaining one in NYC?

As much as I would love to do this one day, I am with you on this one. To risky and too many variables determining success.

Anonymous said...

Ugh, avoid the business like the plague. I was a 30%, passive investor in pub in Arizona that went bust. I'm surprised by the insurance number, perhaps it's because people don't drive in NY. Liability insurance out west would run $20k-$30k a year. There's also state gross receipts tax off the top and don't forget shrinkage. Owners need to tend bar otherwise staff loves giving it away!